Fluctuations in the LIBOR
Posted 29th December 2008 by Nigel

On the graph below, the red line shows how the Bank of England base rate has risen and fallen over the last few years; the blue line shows how fluctuations in the LIBOR (London Inter Bank Offered Rate) compare with the fluctuations in the base rate. 

LIBOR to date is 2.81% for the quarter but can change on a daily basis and as you can see it was in between 3.75% and 4% on 2nd December.

The Royal Institution of Chartered Surveyors (RICS) has predicted further house price reductions in the forthcoming year of up to approximately 10%.  If this transpires, prices will have eventually dropped by around 25% from their peak in the summer of 2007.  RICS suggests that this expected drop might be the bottoming out of the property market and that we may see prices start to climb later in 2009. 

New mortgage approvals and remortgages both hit new lows

According to the British Bankers Association (BBA), the number of mortgage approvals for house purchases fell by 14% in November to a new low of 17,773, which is a 60% drop from 12 months ago. 

Remortgaging has also reduced.  Recent figures indicate that the number of remortgages fell to 29,798, which is just 57% of the 52,452 from the previous month.  This is the lowest for eight years.  With homeowners unable to find better deals in the market place, they are simply allowing their mortgages to switch to the standard variable rate at the end of the product period.  This is generally with the view of seeing how the property market moves and what interest rates do over the coming months before considering a new mortgage. 

If you would like more information on the article above or would like to speak with one of mortgage team call mortgages4me free on 0800 652 5636.

Money Management Magazine December 2008

Posted December 12th 2008 by Nigel

I recently met with Money Management Magazine to discuss changes in the UK mortgage market for an article in December’s addition.  Following are some excerpts from the article that I think are worthy of note.

‘In these tight economic conditions lenders are being increasingly careful about exactly how much they lend to individual borrowers.  Income multiples are definitely a thing of the past and affordability models are becoming increasingly popular.

‘Exactly how each lender’s affordability model works remains a mystery, since it is classed as competitive and commercially sensitive information.

‘For most lenders, the maximum loans to value (LTVs) for first time buyers, are effectively 90%.

‘Nigel Broom, associate director at Smith & Pinching, observes that the best rates will remain on the lower LTVs because they simply represent lower risk business.  However, he blames lenders for not lending to each other, acknowledging that while LIBOR (a daily reference rate based on the interest rate at which banks borrow unsecured funds from banks in the London wholesale money market) is slowly on its way down, it has not fallen sufficiently to reduce the rates on offer to borrowers.  He also complains that lenders are not helping things by absorbing cuts in the Bank Base Rate rather than passing them on to borrowers.

‘Broom has plenty to say about lenders’ affordability calculators too.  He says that most of them are based on credit ratings.  For example, he says that HBOS gives a borrower an A, B, C or D rating based on how they perform on the affordability test.  Anyone with an A rating will require little income verification.  And while income multiples are no longer very popular, an A rating effectively entitles a borrower to an income multiple of between 4 and 4.5 times salary.  B and C rated customers are effectively looking at offers of between 3 and 3.5 times salary.

‘He says that before finding a deal for a borrower, his firm will run a credit check to see how they are likely to fare.  He explains, “If you’ve lived at the same address for 10 years, that’s 10 points towards your score.  If you’re in probationary employment, that’s minus five points.  The answer to every question gives you a certain number of points.”

‘Recently he helped a borrower who was looking for a mortgage on a shared ownership property, which would immediately affect the credit score.  Moreover, there was a CCJ, which would be minus 20 points and it was clear that the borrower would be unlikely to gain the minimum number of points necessary for a mortgage offer.  Broom therefore sent them to a certain lender he knew who are one of the few lenders that do not credit score in the same way.’

If you would like more information on the article above or would like to speak with one of the team call us free on 0800 652 5636.

HSBC wants to lend more money in 2009
Posted December 8th 2008 by Melanie and Nigel

HSBC is aiming to take a larger share of the UK mortgage market in 2009.

It has set aside £15 billion to lend in 2009, which is roughly double the amount from 2007 and 20% more than 2008.  An HSBC spokesman has said ‘we will be surprised if we do not have a bigger slice of a smaller market’.

Halifax to honour tracker deals
Posted December 4th 2008 by Melanie and Nigel

The mortgage lender Halifax will pass on a further reduction in base rates to its half a million existing borrowers who have a tracker rate.

The bank has a clause in its mortgage contracts which states it can stop cutting its interest rates after the bank rate reaches 3% (known as a ‘floor’).  The Halifax has announced it will not take this into consideration in the future and will reduce its rate accordingly in line with bank base rates. 

This move could be a reaction to views put forward by the Financial Services Authority and the Council of Mortgage Lenders last week.  The two bodies warned that if the Halifax did not make the imposition of a floor clear in its Key Facts illustrations (documents issued to a customer at the time the mortgage is arranged), this could be seen as unfair treatment of customers and the floor could become legally unenforceable.  

As expected, the Bank of England has announced a further reduction in its base rate from 3% to 2%.

Other lenders such as Lloyds TSB (Cheltenham & Gloucester) made similar statements on Wednesday the 3rd December.

Brown reveals plan to help home owners who lose their jobs
Posted December 3rd 2008 by Melanie and Nigel

With repossessions expected to rise significantly in the coming year, Gordon Brown today outlined a scheme designed to assist homeowners who lose their jobs or suffer a significant cut in their income during the economic downturn.  The intention of the scheme is to create a breathing space for homeowners who experience difficulties meeting their mortgage payments and may face repossession.

The scheme is expected to cover people who have a mortgage of up to £400,000 and savings of less than approximately £16,000.  These individuals will be eligible to apply to defer their mortgage interest payments by up to two years; the proportion of the interest payment that can be deferred could be up to 100%. 

Mr Brown also announced that the government-owned lenders, i.e. Northern Rock, Bradford & Bingley and RBS, agreed that repossession proceedings would not begin until homeowners not covered by the scheme are six months behind on their payments.

The views given in this blog are those of mortgages4me, a trading name of Smith & Pinching Financial Services Ltd, which is authorised and regulated by the Financial Services Authority.  These views are market and economic views and should not be interpreted as giving advice.  Whilst every care has been taken in producing this blog, Smith & Pinching Financial Services Ltd will not be held responsible for any inaccuracies, omissions or misquotations.  Registered office: 295 Aylsham Road, Norwich, Norfolk, NR3 2RY.